A Vanderbilt expert on health policy and economics says that many people who get subsidized private health insurance under the Affordable Care Act in 2014 could face confusing changes in eligibility and cost sharing, and some will be required to pay the government back after the first year of participation. John Graves, Ph.D., assistant professor of Preventive Medicine and member of the Institute for Medicine and Public Health and the Center for Health Services Research, performed simulations that show the current tools in the law to assess income will need to be improved to reduce errors.

“This paper tries to figure out how you get the right amount of subsidy to the right people in a way that is consistent and transparent and doesn’t confuse people. One of the concerns is if there is too much uncertainty, people might just decide to go uninsured,” Graves said.

The research, published as a Web First in the journal Health Affairs, finds 12 percent of applicants applying for new subsidized private plans, made available to tax payers through new state-run insurance “exchanges,” will not receive early access to tax credits to offset their monthly insurance premiums. An additional 2.6 percent with incomes too high for the credit could initially receive subsidies and then have to pay a portion back later.

Graves also ran simulations that confirm a problem that is already well known: about a third of low-income taxpayers may be initially enrolled in the Medicaid program and later will be required to move to private coverage when their income rises. Experts call this “churning.”

“I think some people will be startled by seeing these numbers, and we hope they will look at our recommendations and work to make some changes before 2014,” Graves said. “The idea of subsidizing the cost of insurance premiums using tax credits is not new. It has been a feature of every major health reform proposed by both political parties over the last 25 years, so it is critical to address subsidy errors regardless of what happens with the Affordable Care Act.”

Graves was part of a team of health care economists who began in 2009 taking a careful look at how the Affordable Care Act would impact insurance coverage across the U.S. A central concern is the government has two different ways to assess financial eligibility. For Medicaid, current monthly income is assessed, but for subsidized private insurance, prior annual tax returns are used to help predict how large the tax break should be later.

“The trouble is, when you have a measure of income with a lot of fluctuation, you have worse targeting. Especially for low income people, there can be large fluctuations in income, certainly from month to month, but it’s even more likely when final determination of eligibility level is delayed by a year,” Graves said.

Graves says this hits at the heart of the current health care debate. When politicians talk about the trillion-dollar cost of health care reform, they are talking the cost of expanding of Medicaid and providing subsidies for uninsured Americans. Some 32 million uninsured people are estimated to be eligible for health insurance under these two plans.

The paper offers the following advice:

•Congress should consider using the same measure of income across both Medicaid and the subsidized exchanges to avoid confusion and error.
•States should work to provide a longer record of wages, perhaps six months, and should provide it quickly for more accurate initial assessments.
•Government should be transparent and work to reduce confusion and uncertainty for the public to avoid a backlash once the Affordable Care Act expansion goes into effect.